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Question No.1 is compulsory (4 X 5 = 20 Marks).

Answer any five questions from the remaining six questions (16 X 5 = 80 Marks). [Answer any 4 out of 5 in Q.7]
Working Notes should form part of the answer.
Wherever necessary, suitable assumptions should be made and indicated in answer by the Candidates.

Note: All Page References given are from Padhukas Ready Referencer on Accounting For CA Inter (IPC)

Question 1(a): AS7 Segmenting / Combining Contracts 5 Marks


GTI Ltd negotiates with Bharat Oil Corporation Ltd (BOCL), for construction of Retail Petrol & Diesel Outlet Stations. Based
on proposals submitted to different Regional Offices of BOCL, the final approval for one outlet each in Region X, Region Y,
Region Z is awarded to GTI Ltd. A single agreement is entered into between two. The agreement lays down values for each of
the three outlets, i.e. ` 102 Lakhs, ` 150 Lakhs, ` 130 Lakhs for Region X, Region Y, Region Z respectively. Agreement also lays
down completion time for each Region.
Comment whether GTI Ltd will treat it as single contract or three separate contracts with reference to AS7.

Solution: Similar to Page B.5.2 Q.No.5 [RTP Qn]

1. Principle: When a Contract covers as number of assets, the Construction of each Asset should be treated as a
separate Construction Contract, when
(a) Separate proposals have been submitted for each asset,
(b) Each Asset has been subject to separate negotiation, and the Contractor and Customer have been able to accept or
reject that part of the Contract relating to each Asset, and
(c) The Costs and Revenues of each Asset can be identified.
2. Analysis: Here, each Outlet is submitted as a separate proposal to different Regional Office, separately negotiated,
and Costs and Revenues thereof can be separately identified. Hence, each Asset will be treated as a single contract
even if there is only one document of contract.
3. Conclusion: Three separate Contract Accounts have to be recorded and maintained in the books of GTI Ltd. For each
Contract, principles of Revenue and Cost recognition have to be applied separately, and Net Income determined for
each asset as per AS7.

Question 1(b): AS10 Revaluation of Asset, Disposal of Machinery 5 Marks


Hema Ltd purchased a Machinery on 01.04.2008 for ` 15,00,000. The Company charged straightline depreciation based on 15
years working life estimate and Residual Value ` 3,00,000. At the beginning of the 4th year, the Company by way of systematic
evaluation, revalued the Machinery upward by 20% of Net Book Value as on date and also reestimated the useful life as 7
years and Scrap Value as Nil. The increase in Net Book Value was credited directly to Revaluation Reserves. Depreciation (on
SLM basis) later on was charged to Profit & Loss Account. At the beginning of 8 th year, the Company decided to dispose off the
Machinery and estimated the Realizable Value to ` 2,00,000.

Ascertain the amount to be charged to Profit & Loss Account at the beginning of 8 th year with reference to AS10.

Solution: Similar to Page B.7.19 Q.No.54. Also see Page B.7.17, Q.No.49 [RTP, N 96, N 98, M 06]

Particulars Workings `
(a) Cost of the Machinery as on 01.04.2008 Given 15,00,000
` 15,00,000 `3,00,000
(b) Depreciation p.a. 80,000
15 Years
(c) Depreciation from 01.04.2008 to 31.03.2011 (for 3 years) ` 80,000 3 Years 2,40,000
(d) Net Book Value of the Machinery as on 01.04.2011 (a) (c) 12,60,000
(e) Revised Net Book Value as on 01.04.2011 `12,60,000 + 20% 15,12,000
(f) Increase in Revaluation to be taken to Revaluation Reserve (d) (e) 2,52,000
Particulars Workings `
` 15,12,000 (-) Nil
(g) Revised Depreciation p.a. [Assuming balance Useful Life is 7 yrs] 2,16,000
7 Years
(h) Depreciation from 01.04.2011 to 31.03.2015 (for 4 years) ` 2,16,000 4 years 8,64,000
(i) Net Book Value of the Machinery as on 01.04.2015 (e) (h) 6,48,000
(j) Deemed Book Value of M/c, on 01.04.2015, if the Revaluation had
not taken place = Original Cost ` 15,00,000
() Old Depreciation for first 3 years () ` 80,000 3 Years
()Deprn for next 4 years based on new Useful Life (Note 1) () ` 1,80,000 4 Years 5,40,000
(k) Loss on Disposal = Book Value () Realizable Value on Disposal ` 6,48,000 () ` 2,00,000 4,48,000
(l) Deemed Book Value () Realizable Value on Disposal ` 5,40,000 () ` 2,00,000 3,40,000
4,48,000 () 3,40,000
(m) Loss to be debited / adjusted in Revaluation Reserve (Note 2) 1,08,000
(OR) 6,48,000 () 8,40,000
(n) Amount to debited / adjusted in Profit and Loss A/c (Note 3) (k) (m) 3,40,000
(o) Balance in Revaluation Reserve transferred to General Reserve (fm )` 2,52,000 () ` 1,08,000 1,44,000

Note 1: Revised Depreciation p.a. for Years 4 to 7 = ` 12,60,000 (-) Nil = ` 1,80,000
7 Years
Note 2: On disposal of a previously revalued Fixed Asset, the difference between Net Disposal Proceeds and the Net Book
Value should be charged or credited to the Profit and Loss Statement. However, to the extent such Loss is
attributed to earlier revaluation, it shall be adjusted with balance available in Revaluation Reserve on the date of
disposal. Hence, adjustment with Revaluation Reserve may be computed in any of the 2 ways as under
Loss based on Actual Book Value () Loss based on Deemed Book Value as if Revaluation had not taken place (KL)
Difference between Actual Book Value and Deemed Book Value as if Revaluation had not taken place (IJ)

Note 3: Total Loss on Disposal = ` 4,48,000, out of which ` 1,08,000 adjusted against Revaluation Reserve. Hence,
balance is debited to Profit and Loss A/c.

Question 1(c): AS13 Valuation of Investments 5 Marks


How you will deal with following in the Financial Statement of Paridhi Electronics Ltd as on 31.03.2016 with reference to AS13?
(a) Paridhi Electronics Ltd invested in the Shares of another Unlisted Company on 1 st May 2012 at a cost of ` 3,00,000 with the
intention of holding more than a year. The Published Accounts of Unlisted Company received in Jan 2016 reveals that the
Company has incurred Cash Losses with decline market share and investment of Paridhi Electronics Ltd may not fetch
more than ` 45,000.
(b) Also Paridhi Electronics Ltd has Current Investment (X Ltds Shares) purchased for ` 5 Lakhs, which the Company wants to
reclassify as LongTerm Investment. The Market Value of these Investments as on date of Balance Sheet was ` 2.5 Lakhs.

Solution:
Case (a): Similar to Page A.5.41 Q.No.23 [RTP, M 98. M 09, M 10, M 11 Qn]
Hint: Refer Principle on Carrying Amount of Long Term Investments [Para 1719, 32, 33].
1. The facts of the case clearly indicate that the decline in the value of the LongTerm Investment is not temporary.
Hence, a provision for diminution should be made to reduce the Carrying Amount of LongTerm Investment to ` 45,000
in the Financial Statements for the year ended 31.03.2016.
2. The Published Accounts of the Unlisted Company provide further evidence as to the conditions persisting at the Balance
Sheet date. Hence, this is an Adjusting Event under AS 4.
3. The amount of reduction ` 2,55,000 (i.e. ` 3,00,000 ` 45,000) should be charged in the P&L A/c for the year. AS 13
requires disclosure of changes in the Carrying Amounts of LongTerm Investments.

Case (b): Similar to Page A.5.37 Q.No.8 [RTP, M 12]


1. Principle: Transfer should be made at lower of (a) Cost, & (b) Fair Value / Carrying Amount at the date of transfer.
2. Analysis and Conclusion: In this case, the transfer should be made at Market Value (being lower of ` 5 Lakhs and
` 2.5 Lakhs) and hence the Long Term Investments should be carried at ` 2.50 Lakhs. The loss of ` 5 ` 2.5 = ` 2.5
Lakhs should be provided for, in the Profit and Loss Account.
Question 1(d): AS9 Revenue Recognition 5 Marks
A Manufacturing Company has the following stages of production and sale in manufacturing Fine Paper Rolls:
Date Activity Costs to Date (`) Net Realizable Value (`)
15.01.2016 Raw Material 1,00,000 80,000
20.01.2016 Pulp (WIP 1) 1,20,000 1,20,000
27.01.2016 Rough & Thick Paper (WIP 2) 1,50,000 1,80,000
15.02.2016 Fine Paper Rolls 1,80,000 3,50,000
20.02.2016 Ready for Sale 1,80,000 3,50,000
15.03.2016 Sale agreed and Invoice raised 2,00,000 3,50,000
02.04.2016 Delivered and paid for 2,00,000 3,50,000
Explain the state on which you think Revenue will be generated and state how much would be the Net Profit for year ending
31.03.2016 on this product, according to AS9.
Solution: Refer Principles in Chapter B.6.2 AS9 Revenue Recognition
1. As per AS9, Revenue from Sale of Goods is recognised only when the following conditions are satisfied
(a) Transfer of Property / Significant Risks and Rewards of Ownership, from the Seller to the Buyer,
(b) No effective control of Seller, over the Ownership of Goods,
(c) No significant uncertainty exists as to the amount of consideration derived from sale of goods,
(d) It is reasonable to expect ultimate collection at the time of performance.

2. Raw Material, WIP 1 and WIP 2 are not saleable as such. Only when the goods are produced and ownership is
transferred to the Buyer for consideration, the question of recognizing Revenue arises. Since the sale is agreed and the
Invoice is raised on 15.03.2016, the ownership is assumed to be transferred on 15.03.2016. Hence, Revenue will be
recognized on 15.03.2016.

3. Hence, Sale Value is ` 3,50,000 and Related Costs is ` 2,00,000. So, the Net Profit for the year ended 31.03.2016 will
be ` 3,50,000 ` 2,00,000 = ` 1,50,000.

Question 2: Internal Reconstruction 16 Marks


Proficient Infosoft Ltd is in the hands of a Receiver for Debenture Holders who holds a charge on all Assets except Capital. The
following statement shows the position as regards Creditors as on 30th June 2016:
Liabilities ` Assets `
8000 Shares of ` 100 each ` 60 paid up Property (Cost is ` 3,80,800) estimated at 1,08,000
First Debentures 3,60,000 Plant and Machinery (Cost is ` 2,87,200) estimated at 72,000
Second Debentures 7,80,000 Cash in hand of the Receiver 3,24,000
Unsecured Trade Payables 5,40,000 SubTotal 5,04,000
Add: Uncalled capital 3,20,000
SubTotal 8,24,000
Add: Deficiency 8,56,000
Total 16,80,000 Total 16,80,000
A holds First Debentures for ` 3,60,000 and Second Debentures for ` 3,60,000. He is also an Unsecured Trade Payable
for ` 1,08,000. B holds Second Debentures for ` 3,60,000 and is an Unsecured Trade Payable for ` 72,000.
The following scheme of reconstruction is proposed.
(a) A is to cancel ` 2,52,000 of the Total Debt owing to him, to bring ` 36,000 in Cash and to take First Debentures (in
cancellation of those already issued to him) for ` 6,12,000 in satisfaction of all his claims.
(b) B to accept ` 1,08,000 in cash in satisfaction of all claims by him.
(c) In full settlement of 60% of the claim, Unsecured Trade Payable (other than A and B) agreed to accept 3 Shares of ` 25
each, fully paid against their claim for each ` 100.
The balance of 40% is to be postponed and to be payable at the end of 3 years from the date of Courts approval of the
scheme. The Nominal Share Capital is to be increased accordingly.
(d) Uncalled Capital is to be called up in full and ` 75 per Share cancelled, thus making the Shares of ` 25 each.
Assuming that the Scheme is duly approved by all parties interested and by the Court, give necessary Journal Entries.
Solution: Similar to Page A.10.35 Q.No.18 of Padhukas Ready Referencer on Accounting [N 00]

Journal Entries in the Books of Proficient Infosoft Ltd


S.No. Particulars Dr. (`) Cr. (`)
1. First Debentures A/c Dr. 3,60,000
Second Debentures A/c Dr. 3,60,000
Sundry Creditors A/c Dr. 1,08,000
To As A/c 8,28,000
(Being the total amount due to A, transferred to his Account)
2. Bank A/c Dr. 36,000
To As A/c 36,000
(Being amount received from A under Reconstruction Scheme)
3. As A/c (Total 8,28,000 + 36,000) Dr. 8,64,000
To First Debentures A/c (given) 6,12,000
To Reconstruction A/c (balancing figure) 2,52,000
(Being issue of First Debentures for ` 6,12,000 and cancellation of ` 2,52,000
(bal.fig) Total Debt due to A, and as per approved Reconstruction Scheme)
4. Second Debentures A/c Dr. 3,60,000
Sundry Creditors A/c Dr. 72,000
To Bs A/c 4,32,000
(Being the total amount due to B, transferred to his account)
5. Bs A/c Dr. 4,32,000
To Cash A/c (given) 1,08,000
To Reconstruction A/c (balancing figure) 3,24,000
(Being cash to B in full satisfaction, and balance ` 3,24,000 out of Total Debt
due to B cancelled, as per approved Reconstruction Scheme)
6. Sundry Creditors A/c [Given 5,40,000 A 1,08,000 B 72,000] X 60% Dr. 2,16,000
To Equity Share Capital (` 25) A/c 1,62,000
To Reconstruction A/c 54,000
(Being allotment of 3 Shares of ` 25 each, for every ` 100 of balance due to
Creditors, towards 60% of their Dues.)
7. Bank A/c Dr. 3,20,000
To Equity Share Capital A/c 3,20,000
(Being the balance of ` 40 per Share on 8,000 Equity Shares called up and
received as per approved reconstruction scheme)
8. Equity Share Capital (` 100) A/c Dr. 8,00,000
To Equity Share Capital (` 25) A/c 2,00,000
To Reconstruction A/c 6,00,000
(Being the reduction of Equity Shares of ` 100 each to Shares of ` 25 each, as
per approved Reconstruction Scheme)

Question 3(a): Cash Flow Statement Direct Method 8 Marks


On the basis of the following data, prepare a Cash Flow Statement for the year ended 31 st March 2016 (Using Direct Method):
(a) Total Sales for the year were ` 398 Crores out of which Cash Sales amounted to ` 262 Crores.
(b) Receipts from Credit Customers during the year, totalled ` 134 Crores.
(c) Purchases for the year amounted to ` 220 Crores out of which Credit Purchase was 80%.
Balance in Creditors as on 01.04.2015 ` 84 Crores, and as on 31.03.2016 ` 92 Crores.
(d) Suppliers of Other Consumables and Services were paid ` 19 Crores in cash.
(e) Employees of the Enterprises were paid 20 Crores in cash.
(f) Fullypaid Preference Shares of the Face Value of ` 32 Crores were redeemed. Equity Shares of the Face Value of ` 20
Crores were allotted as fully paid up at Premium of 20%.
(g) Debentures of ` 20 Crores at a premium of 10% were redeemed. Debentureholders were issued Equity Shares in lieu of
their Debentures.
(h) ` 26 Crores were paid by way of Income Tax.
(i) A New Machinery costing ` 25 Crores was purchased in part exchange of an Old Machinery. The Book Value of the Old
Machinery was ` 13 Crores. Through the negotiations, the Vendor agreed to take over the Old Machinery at a higher value
of ` 15 Crores. The balance was paid in Cash to the Vendor.
(j) Investment costing ` 18 Crores were sold at a Loss of ` 2 Crores.
(k) Dividends totally ` 15 Crores (including Dividend Distribution Tax of ` 2.7 Crores) was also paid.
(l) Debenture Interest amounting ` 3 Crores was paid.
(m) On 31st March 2015, Balance with Bank and Cash on hand totalled ` 2 Crores.

Solution: Similar to Page B.3.11 Q.No.2 [M 13 Qn]

Cash Flow Statement for the year ended 31st March


Particulars ` Crores ` Crores
A. CASH FLOW FROM OPERATING ACTIVITIES:
Cash Receipts from Customers for Sale of Goods
[Cash Sales 262 + Receipts from Credit Customers 134] 396
Cash Payments to Suppliers for Goods
[Cash Purchases (220 20%) = 44 + Payment to Creditors WN 1 168] (212)
Cash Payments to Suppliers of Consumables and Services (19)
Cash Payments to Employees (20)
Cash generated from Operations before Taxes & Extra Ordinary Items 145
Less: Taxes Paid (26)
Net Cash Flow from / (used in) Operating Activities [A] 119
B. CASH FLOW FROM INVESTING ACTIVITIES:
Sale of Investments [Cost 18 Crores Loss on Sale 2 Crores] 16
Purchase of new Machinery [25 Crores 15 Crores] (10)
Net Cash Flow from / (used in) Investing Activities [B] 6
C. CASH FLOW FROM FINANCING ACTIVITIES:
Issue of Equity Shares at Premium (20 Crores + 20% Premium) (WN 2) 24
Redemption of Preference Shares (WN 2) (32)
Debenture Interest paid (2)
Dividends Paid (including Dividend Distribution Tax 2.7 Crores) (15)
Net Cash Flow from / (used in) Financing Activities [C] (25)
D. Net Increase or Decrease in Cash or Cash Equivalents [A + B + C] 100
E. Opening Balance of Cash & Cash Equivalents 2
F. Closing Balance of Cash & Cash Equivalents 102
WN 1: Payment to Creditors = (Opg Bal 84 + Credit Purchases 176 [220 80%] Clg Bal 92) = 168.
WN 2: It is assumed that the Preference Shares are settled by Cash and Equity Shares are issued for Cash Consideration.
WN 3: Since Debentures are redeemed on noncash basis, i.e. by allotment of Equity Shares, it will not form part of the
Cash Flow Statement.

Question 3(b): SelfBalancing and Sectional Balancing System Preparation of Total Debtors and Creditors A/cs 8 Marks
The following particulars are obtained from books of Prime Ltd for the year ended 31 st March 2016:
Particulars ` Particulars `
Cash Sales 50,000 Bills Receivable dishonoured 5,000
Credit Purchases 5,60,000 Return Inward 17,000
Collection from Debtors 8,50,000 Payment to Creditors 3,24,000
Bills Receivable drawn 40,000 Discount allowed 6,000
Discount Received 5,000 Debtors Cheque Returned dishonoured 15,000
Cash Purchases 24,000 Credit Sales 9,80,000
Bills Payable Paid 13,000 Bills Receivable Collected 20,000
Recovery of Bad Debts 3,000 Return Outward 7,400
Bills Receivable discounted at Bank 16,000 Bills Receivable endorsed to Creditors 15,800
Particulars ` Particulars `
Interest charged on Overdue Customers A/c 2,400 Overpayment Refunded by Suppliers 1,200
Endorsed Bills Receivable dishonoured 11,000 Bad Debts 2,000
(Noting Charges ` 150) Opening Balances: Sundry Debtors 1,56,000
Bills Payable accepted 32,000 Sundry Creditors 1,70,000
You are required to prepare the Total Debtors Account and Total Creditors Account.

Solution: Similar to Page A.2.42 Q.No.16 [N 12 Qn]

1. Total Debtors A/c, i.e. Sales Ledger Adjustment Account (in General Ledger)
Particulars ` Particulars `
To balance b/d (Opening Balances) 1,56,000 By Bank Collection from Debtors 8,50,000
To Bills Receivable Dishonoured 5,000 By Bills Receivable A/c B/R drawn on Drs. 40,000
To Sales Credit Sales 9,80,000 By Sales Return A/c Returns Inward 17,000
To Bank Cheque dishonoured 15,000 By Discount Allowed 6,000
To Interest Charged on Overdue Accounts 2,400 By Bad Debts A/c 2,000
To Creditors Bills Dishonoured (11,000 +150) 11,150 By balance c/d (bal. fig.) 2,54,550
Total 11,69,550 Total 11,69,550
Note: Cash Sales, Recovery of Bad Debts, B/R discounted with Bank, B/R Collected, B/R endorsed to Creditors, will not
affect the Total Debtors A/c.

2. Total Creditors A/c, i.e. Purchase Ledger Adjustment Account (in General Ledger)
Particulars ` Particulars `
To Discount Received 5,000 By balance b/d (Opening) 1,70,000
To Bills Payable A/c accepted 32,000 By Purchases (Credit Purchases) 5,60,000
To Bank Payment to Creditors 3,24,000 By Bank A/c overpayments refunded 1,200
To Purchase Returns A/c Returns Outward 7,400 By Debtors endorsed Bills Dishonoured 11,000
To Bills Receivable endorsed to Creditors 15,800
To balance c/d (bal. fig.) 3,58,000
Total 7,42,200 Total 7,42,200
Note: Cash Purchases, Bills Payable paid, will not affect the Total Creditors Account.

Question 4: Not for Profit Organisations Preparation of I&E A/c and Balance Sheet 16 Marks
The Accountant of Retreat & Refresh Club furnishes you the following Receipts and Payments Accounts for the year ending
31st March 2016:
Receipts ` Receipts `
Opening Balance: Cash & Bank 33,520 Honoraria to Secretary 19,200
Subscription 42,840 Miscellaneous Expenses 6,120
Sale of Old Magazines 9,600 Rates & Taxes 5,040
Entertainment Fees 17,080 Groundmans Wages 3,360
Bank Interest 920 Printing & Stationery 1,880
Bar Receipts 29,800 Payment for Bar Purchases 23,080
Repairs 1,280
Telephone Expenses 9,560
New Car (less Sale Proceeds of Old Car ` 12,000) (sold on 01.04.2015) 50,400
Closing Balance: Cash & Bank 13,840
Total 1,33,760 Total 1,33,760

Additional Information:
Particulars 1.4.2015 (`) 31.3.2016 (`)
Subscription due (not received) 4,800 3,920
Cheque issued, but not presented (payment of Printing Expenses) 360 120
Club Premises at Cost 1,16,000
Depreciation on Club Premises provided so far 75,200
Particulars 1.4.2015 (`) 31.3.2016 (`)
Car at Cost 48,760
Depreciation on Car provided so far 41,160
Value of Bar Stock 2,840 3,480
Amount Unpaid for Bar Purchases 2,360 1,720
Depreciation is to be provided @ 5% p.a. on Written Down Value of the Club Premises and @ 15% p.a. on Car for the whole year.

Prepare the Income & Expenditure A/c of the Club for the year ending 31 st March 2016, and Balance Sheet as on that date.

Solution: Similar to Page A.4.26 Q.No.18 [N 04 (Mod)]

A. Income and Expenditure Account for the year ended 31st March 2016
Expenditure ` Income `
To Honorarium to Secretary 19,200 By Subscription (WN 3) 41,960
To Miscellaneous Expenses 6,120 By Sale of Old Newspapers 9,600
To Rates and Taxes 5,040 By Entertainment Fees 17,080
To Groundmans Wages 3,360 By Bank Interest 920
To Printing and Stationery (Note) 1,880 By Surplus from Bar Operations (WN 2) 8,000
To Telephone Expenses 9,560 By Profit on Sale of Car 4,400
To Repairs 1,280 Sale Proceeds Book Value = 12,000 7,600
To Depreciation:
Club Premises (40,800 5%) 2,040
Car (50,400 + 12,000) 15% 9,360
To Excess of Income over Expenditure (b/f) 24,120
Total 81,960 Total 81,960

Note: Opening and Closing Balances of Cash and Bank shown in the Receipts and Payments A/c (given in the Question),
are Bank Balance as per Cash Book. Therefore, no adjustment is required in the above solution on account of
cheques issued, but not presented for payment, since entries would already have been made in Cash Book.

B. Balance Sheet as on 31.03.2016


Capital and Liabilities ` Properties and Assets `
Capital Fund: NonCurrent Assets: Fixed Assets
Opening Balance (WN 1) 87,200 Club Premises (Cost) 1,16,000
Add: Surplus during the year 24,120 1,11,320 Less: Accumulated Depreciation (77,240) 38,760

Current Liabilities: Car (Cost) (50,400 + 12,000) 62,400


Amount due for Bar Purchases 1,720 Less: Depreciation (9,360) 53,040
Current Assets: Bar Stock 3,480
Subscription Receivable 3,920
Cash and Bank 13,840
Total 1,13,040 Total 1,13,040

Working Notes:
1. Balance Sheet as on 01.04.2015 (To find out Opening Balance of Capital Fund)
Capital and Liabilities ` Properties and Assets `
Capital Fund (balancing figure) 87,200 NonCurrent Assets: Fixed Assets
Club Premises (1,16,000 75,200) 40,800
Car (48,760 41,160) 7,600
Current Liabilities: Current Assets: Bar Stock 2,840
Amount due for Bar Purchases 2,360 Subscription Receivable 4,800
Cash at Bank 33,520
Total 89,560 Total 89,560
2. Bar Operations
(a) Bar Purchases for the year = Payment + Due at end Due at beginning = 23,080 + 1,720 2,360 = ` 22,440
(b) Bar Stock consumed for the year = Opg Stock + Purchases Clg Stock = 2,840 + 22,440 3,480 = ` 21,800
(c) Surplus from Bar Operations = Receipts Cost of Stock consumed = 29,800 21,800 = ` 8,000
Note: Alternatively, the computations can be made by preparing Creditors for Bar Purchases A/c and Bar Stock A/c.

3. Subscription Account
Particulars ` Particulars `
To balance b/d (Opg Bal of Subs. Recble) 4,800 By balance b/d (Opg Bal of Subs. Recd in Adv.)
To Income and Expenditure A/c Subs. Income
By Cash / Bank Subs. Received during the year 42,840
recognised during the year (balancing figure) 41,960
To balance c/d (Clg Bal of Subs. Recd in Adv.) By balance c/d (Clg Bal of Subs. Recble) 3,920
Total 46,760 Total 46,760

Question 5(a): Hire Purchase Repossession 8 Marks


Srikumar bought 2 Cars from Fair Value Motors Pvt Ltd on 01.04.2012 on the following terms:
Down Payment ` 6,00,000
1st Installment at the end of First Year ` 4,20,000
2nd Installment at the end of 2nd Year ` 4,90,000
3 Installment at the end of 3 Year
rd rd ` 5,50,000
Interest is charged at 10% p.a.
Srikumar provides Depreciation @ 25% on the diminishing balances.
On 31.03.2015, Srikumar failed to pay the 3rd installment upon which Fair Value Motors Pvt Ltd repossessed 1 Car. Srikumar
agreed to leave one car with Fair Value Motors Pvt Ltd and adjusted the value of the Car against the amount due. The Car taken
over was valued on the basis of 40% depreciation annually on writtendown basis. The balance amount remaining in the
Vendors Account after the above adjustment was paid by Srikumar after 3 months with Interest @ 20% p.a.
You are required to:
(a) Calculate the Cash Price of the Cars and the interest paid with each installment.
(b) Prepare Car Account and Fair Value Motors Pvt Ltd Account in the books of Srikumar, assuming books are closed on 31st
March every year. Figures may be rounded off to the nearest rupee.

Solution: Similar to Page A.5.82 Q.No.14 & 15 [M 90, N 88 Qn]

1. Computation of Cash Price & Interest for Srikumar (Amount in `)


End of Inst.
Balance due after Instalment Cum. Amount Int. at 10% p.a Principal
Instalment Amt
(1) (2) (3) (4)=(2) + (3) (5) = (4) 10/110 (6)=(3)(5)
3 NIL 5,50,000 5,50,000 50,000 5,00,000
2 NIL + 5,00,000 = 5,00,000 4,90,000 9,90,000 90,000 4,00,000
1 5,00,000 + 4,00,000 = 9,00,000 4,20,000 13,20,000 1,20,000 3,00,000
2,60,000 12,00,000
Note: Total Cost of the Cars = `12,00,000 + ` 6,00,000 (Down Payment) = `18,00,000. (i.e. ` 9,00,000 per Car)

2. Valuation of Car (Amount in `)


Particulars Value as per Purchaser Value as per Vendor
Depreciation Rate 25% p.a on Cash Price 40% p.a on Cash Price
Value of Car on 01.04.2012 18,00,000 18,00,000
Less: Depreciation for 20122013 (4,50,000) (7,20,000)
Value of Car on 01.04.2013 13,50,000 10,80,000
Less: Depreciation for 20132014 (3,37,500) (4,32,000)
Value of Car on 01.04.2014 10,12,500 6,48,000
Less: Depreciation for 20142015 (2,53,125) (2,59,200)
Particulars Value as per Purchaser Value as per Vendor
Value of 2 Cars on 31.03.2015 7,59,375 3,88,800
Less: Value of 1 Car taken over 3,79,688 1,94,400
Value of Car after repossession 3,79,687 1,94,400

3. Car A/c (in the Books of Srikumar)


Date Particulars ` Date Particulars `
01.04.2012 To Fair Value Motors A/c 18,00,000 31.03.2013 By Depreciation (18,00,000 25%) 4,50,000
31.03.2013 By balance c/d 13,50,000
Total 18,00,000 Total 18,00,000
01.04.2013 To balance b/d 13,50,000 31.03.2014 By Depreciation (13,50,000 25%) 3,37,500
31.03.2014 By balance c/d 10,12,500
Total 10,12,500 Total 10,12,500
01.04.2014 To balance b/d 10,12,500 31.03.2015 By Depreciation (10,12,500 25%) 2,53,125
31.03.2015 By Fair Value Motors A/c (takeover) 1,94,400
31.03.2015 By Loss on Takeover(3,79,6881,94,400) 1,85,288
31.03.2015 By balance c/d 3,79,687
Total 10,12,500 Total 10,12,500

4. Fair Value Motors A/c


Date Particulars ` Date Particulars `
01.04.2012 To Bank A/c (Down Pymt) 6,00,000 01.04.2012 By Car A/c 18,00,000
31.03.2013 To Bank (Instalment) 4,20,000 31.03.2013 By Interest(18,00,0006,00,000)10% 1,20,000
31.03.2013 To balance c/d (bal.fig) 9,00,000
Total 19,20,000 Total 19,20,000
31.03.2014 To Bank 4,90,000 01.04.2013 By Balance b/d 9,00,000
To Balance c/d (bal.fig) 5,00,000 31.03.2014 By Interest (9,00,00010%) 90,000
9,90,000 9,90,000
31.03.2015 To Car A/c (take over) 3,79,687 01.04.2014 By Balance b/d 5,00,000
31.03.2015 To Balance c/d (bal.fig) 1,70,313 31.03.2015 By Interest 5,00,000 10% 50,000
Total 5,50,000 Total 5,50,000
30.06.2015 To Bank 1,78,628 01.04.2015 By Balance b/d 1,70,313
30.06.2015 By Interest 1,70,313 20% 3/12 8,516
Total 1,78,828 Total 1,78,828

Question 5(b): Insurance Claims Loss of Stock 8 Marks


On 1st April 2016, the Stock of Mr. Hariprasad was destroyed by fire but sufficient records were saved from which following
particulars were ascertained:
Stock at Cost 1 January 2015 1,47,000
Stock at Cost 31 December 2015 1,59,200
Purchases year ended 31 December 2015 7,96,000
Sales year ended 31 December 2015 9,74,000
Purchases 01.01.2016 to 31.03.2016 3,24,000
Sales 01.01.2016 to 31.03.2016 4,62,400
In valuing the Stock for the Balance Sheet at 31st December 2015, ` 4,600 had been written off on certain stock which was a
poor selling line having cost of ` 13,800. A portion of these goods were sold in March 2016 at a loss of ` 500 on original cost of
` 6,900. The remainder of this Stock was now estimated to be worth its original cost. Subject to the above exception, Gross
Profit had remained at a uniform rate throughout the year.
The value of stock salvaged was ` 11,600. The policy was for ` 1,00,000 and was subject to Average Clause.
Work out the amount of the claim of loss by fire.
Solution: Similar to Page A.5.13 Q.No.17 [N 89, M 12 (Mod)]

1. Trading Account for the year ended 31st December 2015 (to compute Normal GP Rate)
Particulars Normal Abnml Total Particulars Normal Abnml Total
To Opening Stk 1,47,000 1,47,000 By Sales 9,74,000 9,74,000
To Purchases (b/f) 7,82,200 13,800 7,96,000 By Closing Stock (b/f) 1,50,000 9,200 1,59,200
To GP (b/f) 1,94,800 1,94,800 By Abn Item w/off 4,600 4,600
Total 11,24,000 13,800 11,37,800 Total 11,24,000 13,800 11,37,800
Gross Profit ` 1,94,800
Normal Gross Profit Ratio = = = 20%
Sales ` 9,74,000
Note:
Normal Value of Purchases, and Normal Value of Closing Stock are derived as balancing figures from respective Rows.
Normal GP and Amt written off on Abnormal Item are derived as balancing figure from the respective Columns.

Dr. 2. Memorandum Trading Account (1st Jan 2016 to 31st Mar 2016) Cr.
Particulars ` Particulars `
To Opening Stock 1,59,200 By Sales 4,62,400
Less: Abnormal Item (9,200) 1,50,000 Less: Abnormal Item (6,900 500) (6,400) 4,56,000
To Purchases 3,24,000 By Stock on the date of fire 1,09,200
To Gross Profit = 20% on Sales 91,200 (balancing figure)
Total 5,65,200 Total 5,65,200

3. Statement of Insurance Claim


Particulars `
Value of Normal Stock (WN 2) 1,09,200
Add: Value of Abnormal Stock (at Original Cost as given) [13,800 6,900] 6,900
Total Value of Stock on 1st Apr 2016 1,16,100
Less: Salvaged Stock (11,600)
Net Loss of Stock 1,04,500
Policy Amount ` 1,00,000
Admissible Claim = Net Claim = ` 1,04,500
90,009
Value of Stock Lost ` 1,16,100

Question 6: Partnership Accounts Death of Partner 16 Marks


A, B & C were Partners sharing Profit and Losses in the Ratio of 2:2:1. Their Balance Sheet as on 01.04.2015 stood as follows:
Capital and Liabilities ` Assets `
Capital Accounts: Fixed Assets 10,00,000
A 5,00,000 Inventory 2,50,000
B 4,00,000 Trade Receivables 3,50,000
C 3,00,000 12,00,000 Cash and Bank 1,00,000
Reserves 1,00,000
Trade Payables 4,00,000
Total 17,00,000 Total 17,00,000

On 1st October 2015, C died, His representatives agreed that:


(a) Goodwill of the Firm be valued at ` 5,00,000. Goodwill not to be shown in Books of Accounts,
(b) Fixed Assets be written down by ` 1,00,000, and
(c) In lieu of Profits, C should be paid at the rate of 25% p.a. on his Capital as on 01.04.2015.

Current Years (20152016) Profit after charging depreciation of ` 95,000 (` 50,000 related to the 1st half) was ` 4,05,000. Profit
was evenly spread throughout the year.
As on 31.03.2016, the following were the balances:
Inventory ` 2,30,000 Trade Receivables ` 1,90,000
Cash and Bank Balances ` 43,770 Trade Payables ` 3,50,000

The particulars regarding their Drawings as given below:


Partner Upto 01.10.2015 After 01.10.2015
A 41,250 50,000
B 41,250 50,000
C 17,500
You are required:
(a) Prepare the Balance Sheet of the Firm as on 31.03.2016, assuming that final settlement to Cs Executors was made on
31.3.2016.
(b) Prepare the Capital A/c of the Partners as on 01.10.2015 & 31.03.2016.

Solution: Similar to Page A.6.57 Q.No.39 [N 00]


1. Goodwill = Given = ` 5,00,000
This is credited to all Partners in old PSR (2:2:1) and debited to Remaining Partners A & B in new PSR (2:2) (1:1)
Particulars A B C
Creation (2:2:1) 2,00,000 (Cr.) 2,00,000 (Cr.) 1,00,000 (Cr.)
Reversal (2:2) 2,50,000 (Dr.) 2,50,000 (Dr.)
Net Effect 50,000 (Dr.) 50,000 (Dr.) 1,00,000 (Cr.)

2. Partners Capital A/c from 01.04.2015 to 30.09.2015 (6 Months)


Particulars A B C Particulars A B C
To Drawings (6 Mths) 41,250 41,250 17,500 By Balance b/d 5,00,000 4,00,000 3,00,000
To Cs Capital(WN 1) 50,000 50,000 By Reserves (2:2:1) 40,000 40,000 20,000
To Cs Executors A/c 4,20,000 By As Capital (WN 1) 50,000
(bal. fig.) By Bs Capital (WN 1) 50,000
To Revaluation Loss 40,000 40,000 20,000 By P&L Suspense A/c 81,250 81,250 37,500
To balance c/d 4,90,000 3,90,000
Total 6,21,250 5,21,250 4,57,500 Total 6,21,250 5,21,250 4,57,500
Note: Loss on Revaluation of Fixed Asset = ` 1,00,000, distributed in old PSR 2:2:1.

3. Distribution of Profit to Partners and Application of Sec.37


Profit before Depreciation for whole year = ` 405,000 + ` 95,000 = ` 5,00,000

Upto date of Death 30.09.2015 (i.e. 6 months period) Balance Period (i.e. 6 months period)

Particulars ` Particulars `
Pft before Deprn=` 5,00,000 6/12 2,50,000 Pft before Deprn = ` 5,00,000 6/12 2,50,000
Less: Depreciation (given) 50,000 Less: Depreciation (given) 45,000
Balance Profit for Distribution 2,00,000 Balance Profit 2,05,000
Less: Cs Share: 3,00,000 25% 6/12 37,500 Less: To Cs Executor (Note below) (66,230)
Balance to be given to A & B (2:2) 1,62,500 Profit distributed in New PSR 2:2 1,38,770
A B A B

` 81,250 ` 81,250 ` 69,385 ` 69,385


Note: Right of Claim u/s 37 = Higher of the following
(a) 6% Interest on Unsettled Capital for 6 months = ` 4,20,000 6% 6/12 = ` 12,600

(b) Profit earned out of Unsettled Capital = ` 2,05,000 4,20,000


= ` 66,230
(4,90,000 3,90,000 4,20,000)
(Note: Capital Balances are obtained from WN 2, after crediting Share of Profit upto date of death as per WN 3.)
4. Profit & Loss Appropriation A/c
Particulars ` Particulars `
To P&L Suspense A/c (I Half Year Profit) 2,00,000 By Profit & Loss A/c (Given) 4,05,000
To Cs Executors A/c (WN 3) 66,230
To A & B Capital at 69,385 each (WN 3) 1,38,770
Total 4,05,000 Total 4,05,000

5. Cs Executors A/c
Particulars ` Particulars `
To Bank 4,86,230 By Cs Capital transfer 4,20,000
By P&L Appropriation A/c 66,230
Total 4,86,230 Total 4,86,230

6. Partners Capital A/c from 01.10.2015 to 31.03.2016


Particulars A B Particulars A B
To Drawings 50,000 50,000 By balance b/d 4,90,000 3,90,000
To balance c/d 5,09,385 4,09,385 By P&L Appropriation 69,385 69,385
Total 5,59,385 4,59,385 Total 5,59,385 4,59,385

7. Balance Sheet of the Firm as on 31.03.2016 (after death)


Capital and Liabilities ` Assets `
Capital Accounts: Fixed Assets (10,00,000 95,000 1,00,000) 8,05,000
A 5,09,385 Current Assets: Inventory 2,30,000
B 4,09,385 9,18,770 Trade Receivables 1,90,000
Current Liabilities: Trade Payables 3,50,000 Cash and Bank 43,770
Total 12,68,770 Total 12,68,770

Question 7(a): Accounting in eEnvironment 4 Marks


Recently a growing trend has developed for outsourcing the accounting function to a Third Party. What are the bases on which
choice of such Third Party is made?
Solution: Refer Page A.1.9, Q.No.10, Point 4 [N 07, N 10, M 12, N 12 Qn]

Question 7(b): Average Due Date 4 Marks


A Merchant Trader having accepted the following several bills falling due on different dates, now desires to have these bill
cancelled and to accept a new bill for the whole amount payable on the average due date:
Sl.No Date of Bills Amount (`) Usance of the Bill
1 1st May, 2016 500 2 Months
2 10 May, 2016
th 300 3 Months
3 5th June, 2016 400 2 Months

www.shrigurukripa.com
4
5
20th June, 2016
10 July, 2016
th
375
500
Find the Average Due Date. Any fraction of a day arising from the calculation to be considered as full day.
Similar to Page A.2.4 Q.No.3 [N 11 Qn]
1 Months
2 Months

Solution:

Computation of Average Due Date (Note: Base Date = 04th July 2016)
Bill Date Term Due Date No. of Days from Base Date Amt (`) Product (`)
Col. (1) Col. (2) Col. (3) Col. (4) Col. (5) Col. (6) = (4) (5)
1st May 2 months 4th July 0 500 0
10th May 3 months 13th Aug 27 + 13 = 40 300 12,000
5th June 2 months 8th Aug 27 + 8 = 35 400 14,000
20th June 1 month rd
23 July 19 375 7,125
10th July 2 months 13th Sep 27 + 31+13 = 71 500 35,500
Total 2,075 68,625
Total of Products th `68,625 = 4th July + 34 days (approx.) = 7th August
Average Due Date = Base Date = 4 July +
Total of Amounts `2,075

Question 7(c): Investment Accounts Cum Interest Purchase 4 Marks


On 1st December 2015, M/s Blue & Black purchased, 20,000 12% fully paid Debentures of ` 100 each at ` 105 cumInterest
Price, also paying Brokerage at 1% of Cum Interest Amount of the purchase. On 1st March 2016, the Firm sold all these
Debentures at ` 110 CumInterest Price, again paying Brokerage @ 1% of Cum Interest Amount. Prepare Investment Account
in the books of M/s. Blue & Black for the period 1 st Dec 2015 to 1st March 2016. Interest being payable half yearly on 30th
September and 31st March of every accounting year.
Solution: Similar to Page A.5.49 Q.No.1 [M 13 Qn]

Investment in 12% Debentures of Ram Ltd A/c


Date Particulars FV Int. Cost Date Particulars FV Int. Cost
01.12.15 To Bank A/c 20,00,000 40,000 20,81,000 01.03.16 By Bank A/c 20,00,000 1,00,000 20,78,000
31.03.16 To P&L Int 60,000 31.03.16 By P&L A/c 3,000
tfr (bal.fig) (Loss Tfr) (bal.fig)
Total 20,00,000 1,00,000 20,81,000 Total 20,00,000 1,00,000 20,81,000

Working Notes: 1. Computation of Cost of Purchase on 01.12.2015


Particulars `
Amount Paid (20,000 `105) 21,00,000
Less: Interest (CumInterest Purchase only) (for Oct and Nov 2015) (20,00,000 12% 2/12) (40,000)
Add: Brokerage at 1% of amount paid 21,000
Net Cost of Purchase 20,81,000

2.Computation of Net Sale Value of Investments on 01.03.2016


Particulars `
Sale Proceeds (20,000 `110) 22,00,000
Less: Brokerage @ 1% (22,000)
Net Sale Proceeds 21,78,000
Less: Interest Component (from 1st Oct 2015 to 28 Feb 2016) (20,00,000 12% 5/12) (1,00,000)
Net Sale Value 20,78,000

Question 7(d): Partnership Accounts Share of Life Policy 4 Marks


X, Y, Z were Partners in a Firm sharing Profit & Loss in ratio of 2:1:1. The Firm took a Joint Life Policy on the lives of all the
Partners of Assured Value of ` 2,00,000. The Firm also took separate Life Policies of Partners as follows:
Partner Assured Values
X ` 1,50,000
Y ` 2,00,000
Z ` 3,00,000
The premium paid for separate Life Policies was debited to Profit & Loss A/c. Surrender Value of all policies is 50%.
You are required to calculate the share of life policies which Xs Executors will get in event of Xs death.
Solution: Refer Accounting Principles in Page A.6.6 Q.No.17

Particulars X Y Z Total
1. Amount received on JLP, due to Xs death, distributed to
1,00,000 50,000 50,000 2,00,000
all Partners in PSR (2 : 1 : 1)
2. Amount received on Separate Life Policy of X, distributed
75,000 37,500 37,500 1,50,000
to all Partners in PSR (2 : 1 : 1)
3. Surrender Value of Ys Policy, distributed to all Partners in
50,000 25,000 25,000 1,00,000
PSR (2 : 1 : 1) = 50% of Assured Value 2,00,000
4. Surrender Value of Zs Policy, distributed to all Partners in
75,000 37,500 37,500 1,50,000
PSR (2 : 1 : 1) = 50% of Assured Value 3,00,000
Total Amount due 3,00,000 1,50,000 1,50,000 6,00,000
Question 7(e): Profits prior to Incorporation 4 Marks
What are the purposes for which PreIncorporation Profit & PreIncorporation Losses can be used for?

Solution: Refer Page A.9.1 Q.No.2

Latest Amendments in Companies Act, 2013


relevant for IPC Group I Accounting Subject
Notfn/Circular Description
Amendments in Companies (Accounts) Rules, 2013:
Page A.8.2, A.8.3 Q.No.2 8th Item Consolidated Financial Statement: 5th Point
Manner of Consolidation is modified as under
(a) Consolidation of Fin.Stmts shall be as per Schedule III and applicable AS.
(b) The above shall not apply to a Company which
F.No.01/19/2013 is a wholly/partlyOwned Subsidiary of another Company and all its other Members,
1. CLV dated including those not otherwise entitled to vote, having been intimated in writing and
27.07.2016 for which the proof of delivery is available with the Company, do not object to the
Company not presenting CFS,
is a Company whose Securities are not listed or are not in the process of listing on
any Stock Exchange, whether in India or outside India, and
its ultimate or any intermediate Holding Company files CFS with the ROC, which are in
compliance with the applicable AS.
SO 2922(E) dated Amendments in Schedule V Managerial Remuneration
2.
12.09.2016 Page A.8.17, Q.7 Section II of Schedule V amended Refer Note below

Schedule V Section II

SECTION II: Remuneration Payable by Companies having no profit or Inadequate Profit without Central
Government approval:
Where in any financial year during the currency of tenure of a Managerial Person, a Company has no profits or its profits are
inadequate, it may, without Central Government approval, pay remuneration to the Managerial Person not exceeding the
limits under (A) and (B) given below
(A) BASED ON EFFECTIVE CAPITAL:
Where the Effective Capital is Remuneration Payable p.a. shall not exceed
Negative or less than ` 5 Crores ` 60 Lakhs
` 5 Crores and above but less than ` 100 Crores ` 84 Lakhs
` 100 Crores and above but less than ` 250 Crores ` 120 Lakhs
` 250 Crores and above ` 120 Lakhs + 0.01% of the Effective Capital in excess of ` 250 Crores
Note: (a) Above limits shall be doubled if the resolution passed by the Shareholders is a Special Resolution.
(b) For a period less than 1 year, the limits shall be prorated.

(B) BASED ON KNOWLEDGE/ NO INTEREST IN CAPITAL, etc.:


In case of a Managerial Person who is functioning in a Professional Capacity, no approval of Central Government is
required, if such Managerial Person
(a) is not having any interest in the Capital of (i) the Company, or (ii) its Holding Company, or (iii) any of its Subsidiaries
directly or indirectly or through any other Statutory Structures, and not having any, direct or indirect interest or related
to the Directors or Promoters of the Company or its Holding Company or any of its Subsidiaries at any time during the
last 2 years before or on or after the date of appointment, and
(b) possesses Graduate Level Qualification, with expertise and specialised knowledge in the field in which the
Company operates.
Note: Any Employee of a Company holding Shares of the Company not exceeding 0.5% of its Paid Up Share Capital under
any scheme formulated for allotment of Shares to such Employees including ESOP or by way of qualification shall be
deemed to be a person not having any interest in the Capital of the Company.
The limits specified under (A) and (B) shall apply, if
1. Approval by Board / Committee: Payment of Remuneration is approved by a resolution passed by the Board and, in
the case of a Company covered u/s 178(1) also by the Nomination and Remuneration Committee.
2. No default in Debts: The Company has not made any default in repayment of any of its Debts (including Public
Deposits) or Debentures or interest payable thereon for a continuous period of 30 days in the preceding financial year
before the date of appointment of such Managerial Person. [Note: In case of a default, the Company obtains prior
approval from Secured Creditors for the proposed Remuneration and the fact of such prior approval having been
obtained is mentioned in the Explanatory Statement to the Notice convening the General Meeting.]
3. Special Resolution: A Special Resolution has been passed at the General Meeting of the Company for payment of
remuneration for a period not exceeding 3 years.
4. Notice: A Statement along with a Notice calling the General Meeting referred in Point 3 above, is given to the Shareholders
containing I. General Information, II. Information about the Appointee, III. Other Information, IV. Disclosures.